Will this man make you happy?

The government's 'happiness tsar', Richard Layard, thinks he knows why we're all so miserable - we're overpaid, over-materialistic and lonely. But, he tells Stuart Jeffries, he has a plan to banish the blues in Britain, once and for all

'Happiness is ... " begins Professor Richard Layard. He pauses. I sit forward in my seat expectantly. Which definition will the government's happiness tsar pick? "A warm gun" (Lennon)?; "The greatest good" (Bentham)?; "The meaning and the purpose of life" (Aristotle)?; "The motive of every action of every man, even of those who hang themselves" (Pascal)?; "The greatest gift that I possess" (Dodd)?

This isn't a small matter. How he defines happiness is one of the most fascinating questions in British public life today, because Layard is quietly effecting a revolution in this miserable, materialistic, overworked country. A Labour peer since 2000, he has been able to influence first Blair's administration and then Brown's into making his happiness agenda government policy. His calls for cognitive behavioural therapy (CBT), for school lessons in emotional intelligence, and other allegedly happiness-causing reforms have been greeted warmly by education secretary Ed Balls, health secretary Alan Johnson, the health guideline-setting National Institute for Clinical Excellence and by local authorities up and down the country. Layard is founder director of the Centre for Economic Performance at the London School of Economics, and runs its Well-Being programme. He speaks cheerfully of how the word "well-being" now figures in job titles at government departments, how the new government policy includes commitments to well-being, how the Office for National Statistics is developing the measurement of well-being, how Ed Balls's Social and Emotional Aspects of Learning programme is devoted to making secondary school children focused on well-being. For Layard, you see, well-being is just another way of saying happiness.

But what is this thing called happiness? After a pause, he finishes his sentence thus: "Happiness is inversely related to income at higher levels of income because of the declining marginal utility of getting richer," says Layard. "Let me show you." He draws a graph: on the X axis is income per head, on the Y axis is average happiness. A curve ascends boldly and then tails off ignominiously. At the bottom of the curve, you will find countries such as Zimbabwe or Russia, where increases in national income per head will increase levels of happiness. "Think of economic growth in India - it has been associated with rises in average happiness." On the ignominious bit you will find a cluster of western countries, including our own, where such rises in income per head don't cheer us up one bit.

When do income rises stop making us happier? Around $20,000, according to Layard. Or, in sterling, £10,128.89. After that there is an inverse relationship between more money and happiness. Quite a lot of you might be thinking you should apply for massive salary cuts, but that's to misunderstand Layard: he's talking about average national incomes rather than individual pay rises.

"When I realised that pursuing national income per head wasn't necessarily a panacea, it was like a bolt of lightning. It made me question what economics is about. It made me ask, what is progress, if not rising GDP?" So, then, what is progress? "It's the reduction of misery and the increase in enjoyment of life. If rises in income aren't doing it, then you have to find out what does produce progress. That is where happiness comes in. Aristotle said that happiness was the only thing that man wanted for which he could give no reason. Anything else - income, sex or whatever - was always for something else, be it to buy things or for the future of the species. But happiness was, for Aristotle, a self-evident goal. And he's right: men and women want to be happy."

It is Layard's contention that, during the past 50 years, consumer society has become dominant and yet happiness has declined. We are richer, healthier, have better homes, cars, food and holidays than we did half a century ago. Unemployment and inflation are low, and yet so are levels of reported happiness. This is due, he says, to a series of things - the break-up of the family, fractured communities, a loss of trust. "The same thing has happened in America, but it hasn't happened in the same way on the continent. I think this shows we are suffering from the extreme individualism that we have reported from America. We are unhappier as a result."

Layard talks in simple ways about these problems. "People would be happier if there were nice people when they went outside. But there is little confidence that there are nice people out there. Here and in the US levels of trust have fallen from 60% to 30% in the past 50 years. We are consumed with status, with envy." This makes the world a much more discombobulating one than economists traditionally thought: individual preferences are not constant, but shift in rhythm to cultural trends and peer pressure. It's a world in which one's accumulated possessions depreciate in value. Like Jacob Marley's chains, they drag us down rather than make us happy.

Layard had a problem, though. Happiness was not regarded as measurable. "I showed in 1980 that surveys showed happiness wasn't increasing, even though income per head was. I stopped thinking about the issue then, because I couldn't see how social policy could change that depressing fact; I had nothing to contribute because happiness was not yet objectively measurable."

Then, in the late 1990s, something happened that revolutionised Layard's career. Happiness became a new science. Or at least Layard, despite wails of derision from sceptics, says it did. Psychological researchers found a close correlation between reported happiness and activity in the cerebral cortex. As a result, Layard insisted, lots of the scepticism about reported happiness was misplaced."I have been so struck with the sophistication of the science in this area," he says. "It's really impressive." It gave Layard hope that he could both define happiness objectively, measure it accurately and then set about creating more of it.

What is happiness, Layard asked in his 2003 lecture series Happiness: Has Social Science a Clue? His answer was simple: "By happiness I mean feeling good - enjoying life and feeling it is wonderful. And by unhappiness I mean feeling bad and wishing things were different." To his satisfaction, he had cut through a philosophical Gordian knot. Yes, many philosophers didn't think the matter was so simple. And true, Nietzsche did write derisively in Twilight of the Idols: "Mankind does not strive for happiness; only the Englishman does that."

No matter. Layard was reclaiming an Englishman's birthright - the intellectual heritage of utilitarianism handed down by Jeremy Bentham, the 19th-century philosopher who argued that what was really important in ethics was "the greatest happiness of the greatest number". But Bentham was not advocating that each person should acquire more and more happiness in the way Imelda Marcos bought shoes. Just before he died Bentham wrote to the daughter of a friend: "Create all the happiness you are able to create; remove all the misery you are able to remove ... And for every grain of enjoyment you sow in the bosom of another, you shall find a harvest in your own bosom."

Stirring stuff. Only one problem, identified by John Stuart Mill: "Ask yourself whether you are happy and you cease to be so." Everyone from Socrates to the Dalai Lama argued that happiness was a recalcitrant little bugger: you couldn't create it, particularly not in someone else's bosom. And so to set happiness as the overarching goal of social policy might seem to be a terrible error.

Layard discounts Mill, Socrates and everybody else's views on this. He thinks happiness is something one can create by working on one's dispositions towards well-being - or getting someone else to show you how. Layard has no doubt there are some of us who are predisposed, perhaps genetically, to being happy. Many of the rest of us, though, need help.

Last year, Layard visited Bhutan, the Himalayan kingdom where government pursues the goal of gross national happiness (GNH). "Bhutan seems much happier than countries that have a materialist rather than moral ethos. Relationships are rather equal, there's very little status anxiety." He was impressed by the four pillars of Bhutan's GNH: the promotion of equitable and sustainable socioeconomic development; preservation and promotion of cultural values; conservation of the natural environment; and establishment of good governance. "What really struck me is that as a matter of policy, there is very little extreme poverty. Bhutan realises that a redistribution of wealth that favours the poor most is better for producing happiness."

Layard's mission now is to make Britain a bit more like Bhutan. It is a mission that has revivified him intellectually and politically late in a distinguished career. He is 74, and has been married since 1991 to Molly Meacher, a social worker who specialised in mental health and now sits as a crossbencher. In his bestselling 2005 book, Happiness: Lessons from a New Science, he cited his wife as a key influence on his thinking.

In 2005, such was his access to government, that he presented a paper called Mental Health: Britain's Biggest Social Problem? to the No 10 Strategy Unit. There he argued that the scourge of unemployment had been replaced by that of depression. He pointed out that more mentally ill people were drawing incapacity benefits than there were unemployed people on Jobseeker's Allowance. Depression was thus bad for both GDP and GNH. One in six people suffered from depression or chronic anxiety, but only a quarter of sufferers were receiving treatment - mostly drugs. Layard recommended that CBT was as effective as drugs and was preferred by most patients.

In his subsequent The Depression Report he recommended scaling up CBT for people suffering from depression and anxiety through training an additional 10,000 clinical psychologists and psychological therapists. The report seemed to promise a great leap forward in British happiness: a national service of 250 local treatment centres, with 40 new services opening each year till 2013, would offer courses of therapy costing £750. Each course would pay for itself in money saved on incapacity benefits and lost tax receipts. Everybody - including the Treasury - would be happy.

But CBT, and Layard's support of it, has been derided. Typical was the GP, Mike Fitzpatrick who, writing in the British Journal of General Practice, charged that Layard was committing a fallacy similar to that of his LSE predecessor William Beveridge, whose 1942 report predicted that improvements in health resulting from better health services would rapidly result in a reduced demand for health and welfare services and hence in a declining burden on the exchequer. It did not. "The notion that a few weeks of CBT will transform miserable people languishing in idleness and dependency into happy shiny productive workers is embarrassing in its absurdity," added Fitzpatrick.

What does Layard make of such criticisms? "Nobody claims that CBT is going to cure everybody. There will still remain roles for medication, family therapy. And for some personality disorders it won't be relevant either. But for many people currently suffering depression it will." Isn't CBT overrated? "No. CBT takes great trouble to evaluate itself. Other forms of treatment such as psychodynamic ones haven't evaluated their methods."

What are the success rates of these courses? "Something like 50%. Which is not bad. The main problem now is that not enough therapists have been trained."

But it is not only depressives on incapacity benefit who need to be helped to become happy. British children need it too, Layard insists. A 2006 University of York survey found that UK children are the unhappiest of any wealthy European country. At the time, the Archbishop of Canterbury, Rowan Williams, said: "The selling of lifestyles to children creates a culture of material competitiveness and promotes acquisitive individualism at the expense of the principles of community and cooperation." "He's right," says Layard. "We need better role models than Britney - for our children as much as for ourselves."

But how? Layard hands me a book. It's called A Quiet Revolution and it chronicles an initiative at West Kidlington primary school, north of Oxford. There, head teacher Neil Hawkes has sought to instil emotional intelligence in his children by devising a positive value lexicon. This consists of a series of 22 words devised by parents and teachers that have positive values. The lexicon includes trust, respect, love, friendship, humility, hope, simplicity, tolerance and (Gordon Brown's favourite) courage.

Each of these words is dramatised in assemblies, and used throughout the school day - in the playground and in dedicated values lessons. "Deep understanding of the positive concepts gradually permeates the layers of individual consciousness by a kind of osmosis," writes the book's author Frances Farrer, "and ultimately is internalised to the point where the concepts govern action."

Isn't this the nanny state gone mad, I ask Layard. He replies that learning such values is about instilling character, which is the only way children can become strong, secure and autonomous. "So it's not nannying. It's the opposite. Any happy society is one in which people feel in control of their own lives. The government can develop a school system that encourages self-determining agents to flourish."

Why should such inculcation of values be important? Partly, Layard argues, because we live in a mostly secular society. "I had an education that included a religious component and, even though I've become agnostic since then, I recognise that those with religious beliefs tend to be happier." Layard contends that there has been a catastrophic "failure to develop a secular morality. People find it hard to talk about moral issues. A moral vocabulary is what is lacking for many children."

In this, Layard claims popular support. He chairs the Good Childhood Inquiry set up by the Children's Society. Its aim is to work out what might be good values to instil in children. His inquiry will report early next year, but he already has some ideas. "We need to get different people into teaching." He wants to encourage more psychology graduates to become teachers, not least because they will appreciate the behavioural psychology that underpins Layard's happiness philosophy. "We must use time in the school day devoted to values in a more distilled way. Again, the problem is that there aren't teachers trained to do such things, so classes given over to values can be waffly.

"We need some people going into schools with missionary intent. Before I became an economist in my 30s, I was a schoolteacher, and at that time the missionaries were the 'use of English' people who, under the aegis of FR Leavis, believed that teaching great literature could provide a moral education. Like the Matthew Arnolds of the Victorian era, we need intelligent missionaries in our schools."

He tells me about the Local Well-Being Project, a new three-year trial involving three local authorities (South Tyneside, Manchester and Hertfordshire) which has the goal of increasing happiness and which, if successful, could be replicated nationwide. The aim is to wean children from binge drinking, adolescent suicide, anxiety and depression into happier, more wholesome futures. Fingers crossed.

This new politics of well-being is one of the greatest experiments in British social policy for generations. It could be a wonderful thing, steering us away from the Scylla of materialism and the Charybdis of selfish individualism, just when we thought we were doomed.

Or maybe Layard's happiness agenda is misplaced. It's too soon to be certain. The revolution is still under way, and there are problems. There are waiting lists for CBT, and positive psychology classes have not yet delivered compelling results. But there's a bigger concern. Aren't you worried, I ask the happiness tsar, that this whole agenda is based on an imposture, and that happiness is neither a desirable nor an achievable political goal? "You'll be happy to learn," says Layard, as he kindly shows me to the lift, "that I'm not".